PINTEREST, INC. The following discussion and analysis of our financial condition and results of operations should be read together with our condensed consolidated financial statements and related notes and other financial information appearing elsewhere in this Quarterly Report on Form 10-Q. This discussion and analysis contains forward-looking statements that involve risks, uncertainties and assumptions, including risks and uncertainty regarding the duration and scope of the impact of the COVID-19 pandemic. Our actual results could differ materially from these forward-looking statements as a result of many factors, including those discussed in "Risk Factors" and "Note About Forward-Looking Statements" included elsewhere in this Quarterly Report on Form 10-Q. Overview of First Quarter Results Our key financial and operating results as of and for the three months endedMarch 31, 2021 are as follows: •Revenue was$485.2 million , an increase of 78% compared to the three months endedMarch 31, 2020 . •Monthly active users ("MAUs") were 478 million, an increase of 30% compared toMarch 31, 2020 . •Share-based compensation expense was$79.5 million , a decrease of$1.6 million compared to the three months endedMarch 31, 2020 . •Total costs and expenses were$508.1 million . •Loss from operations was$(22.9) million . •Net loss was$(21.7) million . •Adjusted EBITDA was$83.8 million . •Cash, cash equivalents and marketable securities were$2,033.7 million . •Headcount was 2,707. Update on the COVID-19 Pandemic The COVID-19 pandemic, which resulted in authorities implementing numerous preventative measures to contain or mitigate the outbreak of the virus, such as travel bans and restrictions, limitations on business activity, quarantines and shelter-in-place orders, continues to have an impact globally. These measures have caused, and are continuing to cause, business slowdowns or shutdowns in affected areas, both regionally and worldwide. These measures also positively impacted Pinner engagement and user growth in both theU.S. and international geographies as people sought online inspiration during the COVID-19 pandemic. Starting inmid-March 2021 , the easing of the restrictions related to the COVID-19 pandemic has begun to slow ourU.S. MAU growth and lowered Pinner engagement as compared to the same period in 2020 as people spend less time online. Since the impact of the COVID-19 pandemic on our results of operations and overall financial performance remains unprecedented and highly unpredictable, our past results may not be indicative of our future performance. Given the uncertainty, we are unable to predict the extent and duration of the impact of the COVID-19 pandemic on advertiser demand, Pinner engagement, and our business, operations and financial results. To the extent the pandemic continues to disrupt economic activity globally we, like other businesses, would not be immune as it could adversely affect our business, operations and financial results. See "Risk Factors" and "Note About Forward-Looking Statements" for additional details. 20 -------------------------------------------------------------------------------- Trends in User Metrics Monthly Active Users. We define a monthly active user as an authenticated
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Note:
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Historically, we have experienced significant growth in our global MAUs over the
last several years. In particular, our international MAUs have grown
significantly as a result of our focus on localizing content in international
markets. We expect our international user growth to continue to drive global
growth in the near term. The impact of the COVID-19 pandemic on user growth
remains difficult to measure and predict, and we are unable to predict the
extent to which new or existing users will maintain their engagement as
restrictions resulting from the COVID-19 pandemic continue to ease.
Trends in Monetization Metrics
Revenue. We calculate revenue by user geography based on our estimate of the
geographic location of our users when they perform a revenue-generating
activity. The geography of our users affects our revenue and financial results
because we currently only monetize certain countries and currencies and because
we monetize different geographies at different average rates. Our revenue in the
United States is higher primarily due to our decision to focus our earliest
monetization efforts there and also due to the relative size and maturity of the
U.S. digital advertising market.
Quarterly Revenue
(in millions)
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Note: Revenue by geography in the charts above is geographically apportioned
based on our estimate of the geographic location of our users when they perform
a revenue-generating activity. This allocation differs from our disclosure of
revenue disaggregated by geography in the notes to our condensed consolidated
financial statements where revenue is geographically apportioned based on our
customers' billing addresses. United States and International may not sum to
Global and quarterly amounts may not sum to annual due to rounding.
Average Revenue per User ("ARPU"). We measure monetization of our platform
through our average revenue per user metric. We define ARPU as our total revenue
in a given geography during a period divided by average MAUs in that geography
during the period. We calculate ARPU by geography based on our estimate of the
geography in which revenue-generating activities occur. We present ARPU on a
U.S. and international basis because we currently monetize users in different
geographies at different average rates. U.S. ARPU is higher primarily due to our
decision to focus our earliest monetization efforts there and also due to the
relative size and maturity of the U.S. digital advertising market.
Quarterly Average Revenue per User
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For the three months ended March 31, 2021 , global ARPU was $1.04 , which
represents an increase of 34% compared to the three months ended March 31, 2020 .
For the three months ended March 31, 2021 , U.S. ARPU was $3.99 and international
ARPU was $0.26 , which represent increases of 50% and 91%, respectively, compared
to the three months ended March 31, 2020 .
We use MAUs and ARPU to assess the growth and health of the overall business and
believe that these metrics best reflect our ability to attract, retain, engage
and monetize our users, and thereby drive revenue.
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Non-GAAP Financial Measure
To supplement our condensed consolidated financial statements presented in
accordance with GAAP, we consider Adjusted EBITDA, a financial measure which is
not based on any standardized methodology prescribed by GAAP.
We define Adjusted EBITDA as net loss adjusted to exclude depreciation and
amortization expense, share-based compensation expense, interest income,
interest expense and other income (expense), net, provision for (benefit from)
income taxes and non-cash charitable contributions.
We use Adjusted EBITDA to evaluate our operating results and for financial and
operational decision-making purposes. We believe Adjusted EBITDA helps identify
underlying trends in our business that could otherwise be masked by the effect
of the income and expenses that it excludes. We also believe Adjusted EBITDA
provides useful information about our operating results, enhances the overall
understanding of our past performance and future prospects, and allows for
greater transparency with respect to key metrics we use for financial and
operational decision-making. We are presenting Adjusted EBITDA to assist
investors in seeing our operating results through the eyes of management and
because we believe that this measure provides an additional tool for investors
to use in comparing our core business operating results over multiple periods
with other companies in our industry. However, our definition of Adjusted EBITDA
may not be the same as similarly titled measures used by other companies.
Adjusted EBITDA should not be considered in isolation from, or as a substitute
for, financial information prepared in accordance with GAAP. There are a number
of limitations related to the use of Adjusted EBITDA rather than net loss, the
nearest GAAP equivalent. For example, Adjusted EBITDA excludes:
•certain recurring, non-cash charges such as depreciation of fixed assets and
amortization of acquired intangible assets, although these assets may have to be
replaced in the future; and
•share-based compensation expense, which has been, and will continue to be for
the foreseeable future, a significant recurring expense and an important part of
our compensation strategy.
Because of these limitations, you should consider Adjusted EBITDA alongside
other financial performance measures, including net loss and our other financial
results presented in accordance with GAAP. The following table presents a
reconciliation of net loss, the most directly comparable financial measure
calculated and presented in accordance with GAAP, to Adjusted EBITDA (in
thousands):
Three Months Ended March 31,
2021 2020
Net Loss $ (21,674) $ (141,196)
Depreciation and amortization 6,783 11,746
Share-based compensation 79,459 81,024
Interest income (1,492) (7,151)
Interest expense and other (income) expense, net 1,563 2,077
Provision for (benefit from) income taxes (1,305) 180
Non-cash charitable contributions 20,490 -
Adjusted EBITDA (1) $ 83,824 $ (53,320) (1)Non-cash charitable contributions of
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Components of Results of Operations
Revenue. We generate revenue by delivering ads on our website and mobile
application. Advertisers purchase ads directly with us or through their
relationships with advertising agencies. We recognize revenue only after
transferring control of promised goods or services to customers, which occurs
when a user clicks on an ad contracted on a cost per click ("CPC") basis, views
an ad contracted on a cost per thousand impressions ("CPM") basis or views a
video ad contracted on a cost per view ("CPV") basis.
Cost of Revenue. Cost of revenue consists primarily of expenses associated with
the delivery of our service, including the cost of hosting our website and
mobile application. Cost of revenue also includes personnel-related expense,
including salaries, benefits and share-based compensation for employees on our
operations teams, payments associated with partner arrangements, credit card and
other transaction processing fees, and allocated facilities and other supporting
overhead costs.
Research and Development. Research and development consists primarily of
personnel-related expense, including salaries, benefits and share-based
compensation for our engineers and other employees engaged in the research and
development of our products, and allocated facilities and other supporting
overhead costs.
Sales and Marketing. Sales and marketing consists primarily of personnel-related
expense, including salaries, commissions, benefits and share-based compensation
for our employees engaged in sales, sales support, marketing and customer
service functions, advertising and promotional expenditures, professional
services and allocated facilities and other supporting overhead costs. Our
marketing efforts also include user- and advertiser-focused marketing
expenditures.
General and Administrative. General and administrative consists primarily of
personnel-related expense, including salaries, benefits and share-based
compensation for our employees engaged in finance, legal, human resources and
other administrative functions, professional services, including outside legal
and accounting services, charitable contributions and allocated facilities and
other supporting overhead costs.
Other Income (Expense), Net. Other income (expense), net consists primarily of
interest earned on our cash equivalents and marketable securities and foreign
currency exchange gains and losses.
Provision for (Benefit From) Income Taxes. Provision for (benefit from) income
taxes consists primarily of income taxes in foreign jurisdictions and U.S.
federal and state income taxes adjusted for discrete items.
Adjusted EBITDA. We define Adjusted EBITDA as net loss adjusted to exclude
depreciation and amortization expense, share-based compensation expense,
interest income, interest expense and other income (expense), net, provision for
(benefit from) income taxes and non-cash charitable contributions. See "Non-GAAP
Financial Measure" for more information and for a reconciliation of net loss,
the most directly comparable financial measure calculated and presented in
accordance with GAAP, to Adjusted EBITDA.
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--------------------------------------------------------------------------------Results of Operations The following tables set forth our condensed consolidated statements of operations data (in thousands):
Three Months Ended March 31,
2021 2020
Revenue $ 485,230 $ 271,940
Costs and expenses (1):
Cost of revenue 133,470 99,232
Research and development 171,728 145,704
Sales and marketing 130,322 117,027
General and administrative 72,618 56,067
Total costs and expenses 508,138 418,030
Loss from operations (22,908) (146,090)
Interest income 1,492 7,151
Interest expense and other income (expense), net (1,563) (2,077)
Loss before provision for (benefit from) income taxes (22,979) (141,016)
Provision for (benefit from) income taxes (1,305) 180
Net loss $ (21,674) $ (141,196)
Adjusted EBITDA (2) $ 83,824 $ (53,320) (1)Includes share-based compensation expense as follows (in thousands):
Three Months Ended March 31,
2021 2020
Cost of revenue $ 1,312 $ 1,426
Research and development 56,475 48,906
Sales and marketing 11,891 13,919
General and administrative 9,781 16,773
Total share-based compensation $ 79,459 $ 81,024 (2)See "Non-GAAP Financial Measure" for more information and for a reconciliation of net loss, the most directly comparable financial measure calculated and presented in accordance with GAAP, to Adjusted EBITDA.
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--------------------------------------------------------------------------------The following table sets forth our condensed consolidated statements of operations data (as a percentage of revenue):
Three Months Ended March 31,
2021 2020
Revenue 100 % 100 %
Costs and expenses:
Cost of revenue 28 36
Research and development 35 54
Sales and marketing 27 43
General and administrative 15 21
Total costs and expenses 105 154
Loss from operations (5) (54)
Interest income - 3
Interest expense and other income (expense), net - (1)
Loss before provision for (benefit from) income taxes (5) (52)
Provision for (benefit from) income taxes - -
Net loss (4) % (52) %
Three Months Ended March 31, 2021 and 2020
Revenue
Three Months Ended March 31,
2021 2020 % change
(in thousands)
Revenue $ 485,230 $ 271,940 78 %
Revenue for the three months ended March 31, 2021 increased by $213.3 million
compared to the three months ended March 31, 2020 . Revenue growth was driven by
a 34% increase in ARPU supported by a 30% increase in MAUs. These resulted in a
22% increase in the number of advertisements served and a 46% increase in the
price of advertisements.
For the three months ended March 31, 2021 compared to the three months ended
March 31, 2020 , revenue based on our estimate of the geographic location of our
users increased by 65% in the United States to $390.4 million driven by a 50%
increase in U.S. ARPU. International revenue increased by 170% to $94.8 million ,
driven by a 91% increase in international ARPU supported by a 37% increase in
international MAUs.
Cost of Revenue
Three Months Ended March 31,
2021 2020 % change
(in thousands)
Cost of revenue $ 133,470 $ 99,232 35 %
Percentage of revenue 28 % 36 %
Cost of revenue for the three months ended
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Research and Development
Three Months Ended March 31,
2021 2020 % change
(in thousands)
Research and development $ 171,728 $ 145,704 18 %
Percentage of revenue 35 % 54 %
Research and development for the three months ended March 31, 2021 increased by
$26.0 million compared to the three months ended March 31, 2020 . The increase
was primarily due to a 14% increase in average headcount, which drove higher
personnel expenses.
Sales and Marketing
Three Months Ended March 31,
2021 2020 % change
(in thousands)
Sales and marketing $ 130,322 $ 117,027 11 %
Percentage of revenue 27 % 43 %
Sales and marketing for the three months ended March 31, 2021 increased by $13.3
million compared to the three months ended March 31, 2020 . The increase was
primarily due to a 18% increase in average headcount, which drove higher
personnel expenses.
General and Administrative
Three Months Ended March 31,
2021 2020 % change
(in thousands)
General and administrative $ 72,618 $ 56,067 30 %
Percentage of revenue 15 % 21 %
General and administrative for the three months ended March 31, 2021 increased
by $16.6 million compared to the three months ended March 31, 2020 . The increase
was primarily due to a $18.9 million increase in non-cash charitable
contributions.
Other Income (Expense), Net
Three Months Ended March 31,
2021 2020 % change
(in thousands)
Interest income $ 1,492 $ 7,151 (79) %
Interest expense and other income (expense) (1,563) (2,077) (25) %
Other income (expense), net $ (71) $ 5,074 (101) %
Other income (expense), net for the three months ended March 31, 2021 decreased
by $5.1 million compared to the three months ended March 31, 2020 . The decrease
was primarily due to lower returns on our marketable securities as a result of
lower interest rates.
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--------------------------------------------------------------------------------Provision for (Benefit From) Income Taxes
Three Months Ended March 31,
2021 2020 % change
(in thousands)
Provision for (benefit from) income taxes $ (1,305) $ 180 (825) %
Provision for (benefit from) income taxes was primarily due to income (losses) generated by our foreign subsidiaries for each of the periods presented. Net Loss and Adjusted EBITDA
Three Months Ended March 31,
2021 2020 % change
(in thousands)
Net loss $ (21,674) $ (141,196) 85 %
Adjusted EBITDA $ 83,824 $ (53,320) 257 %
Net loss for the three months ended March 31, 2021 was $(21.7) million , as
compared to $(141.2) million for the three months ended March 31, 2020 . Adjusted
EBITDA was $83.8 million for the three months ended March 31, 2021 , as compared
to $(53.3) million for the three months ended March 31, 2020 , due to the factors
described above. See "Non-GAAP Financial Measure" for more information and for a
reconciliation of net loss, the most directly comparable financial measure
calculated and presented in accordance with GAAP, to Adjusted EBITDA.
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Liquidity and Capital Resources
We have historically financed our operations primarily through sales of our
stock and payments received from our customers. Our primary uses of cash are
personnel-related costs and the cost of hosting our website and mobile
application. As of March 31, 2021 , we had $2,033.7 million in cash, cash
equivalents and marketable securities. Our cash equivalents and marketable
securities are primarily invested in short-duration fixed income securities,
including government and investment-grade corporate debt securities and money
market funds. As of March 31, 2021 , $94.8 million of our cash and cash
equivalents was held by our foreign subsidiaries.
In November 2018 , we entered into a five-year $500.0 million revolving credit
facility with an accordion option which, if exercised, would allow us to
increase the aggregate commitments by the greater of $100.0 million and 10% of
our consolidated total assets, provided we are able to secure additional lender
commitments and satisfy certain other conditions. Interest on any borrowings
under the revolving credit facility accrues at either LIBOR plus 1.50% or at an
alternative base rate plus 0.50%, at our election, and we are required to pay an
annual commitment fee that accrues at 0.15% per annum on the unused portion of
the aggregate commitments under the revolving credit facility.
The revolving credit facility also allows us to issue letters of credit, which
reduce the amount we can borrow. We are required to pay a fee that accrues at
1.50% per annum on the average aggregate daily maximum amount available to be
drawn under any outstanding letters of credit.
The revolving credit facility contains customary conditions to borrowing, events
of default and covenants, including covenants that restrict our ability to incur
indebtedness, grant liens, make distributions to holders of our stock or the
stock of our subsidiaries, make investments or engage in transactions with our
affiliates. The revolving credit facility also contains two financial
maintenance covenants: a consolidated total assets covenant and a minimum
liquidity balance of $350.0 million , which includes any available borrowing
capacity. The obligations under the revolving credit facility are secured by
liens on substantially all of our domestic assets, including certain domestic
intellectual property assets. We are in compliance with all covenants and there
were no amounts outstanding under this facility as of March 31, 2021 .
We believe our existing cash, cash equivalents and marketable securities and
amounts available under our revolving credit facility will be sufficient to meet
our working capital and capital expenditure needs over at least the next 12
months, though we continue to monitor the potential impacts of the COVID-19
pandemic on our working capital needs and may require additional capital
resources in the future.
For the three months ended March 31, 2021 and 2020, our net cash flows were as
follows (in thousands):
Three Months Ended March 31,
2021 2020
Net cash provided by (used in):
Operating activities $ 270,579 $ 57,290
Investing activities $ (35,058) $ 57,835
Financing activities $ 9,344 $ (23,743)
31-------------------------------------------------------------------------------- Operating Activities Cash flows from operating activities consist of our net loss adjusted for certain non-cash reconciling items, such as share-based compensation expense, depreciation and amortization, non-cash charitable contributions and changes in our operating assets and liabilities. Net cash provided by operating activities increased by$213.3 million for the three months endedMarch 31, 2021 compared to the three months endedMarch 31, 2020 , primarily due to a decrease in our net loss after adjusting for non-cash reconciling items and an increase in collections of accounts receivable. Investing Activities Cash flows from investing activities consist of capital expenditures for improvements to new and existing office spaces. We also actively manage our operating cash and cash equivalent balances and invest excess cash in short-duration marketable securities, the sales and maturities of which we use to fund our ongoing working capital requirements. Net cash used in investing activities increased by$92.9 million for the three months endedMarch 31, 2021 compared to the three months endedMarch 31, 2020 , primarily due to decreased proceeds from maturities of marketable securities offset by increased purchases of marketable securities. Financing Activities Cash flows from financing activities consist of tax remittances on release of RSUs and proceeds from the exercise of stock options. Net cash provided by financing activities increased by$33.1 million for the three months endedMarch 31, 2021 compared to the three months endedMarch 31, 2020 primarily due to the absence of tax remittances on release of RSUs offset by a decrease in proceeds from the exercise of stock options. Off-Balance Sheet Arrangements We did not have any off-balance sheet arrangements as ofMarch 31, 2021 . Contractual Obligations There have been no material changes to our non-cancelable contractual commitments sinceDecember 31, 2020 . Critical Accounting Policies and Estimates We prepare our condensed consolidated financial statements in accordance with GAAP. Preparing our condensed consolidated financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenue and expenses as well as related disclosures. Because these estimates and judgments may change from period to period, actual results could differ materially, which may negatively affect our financial condition or results of operations. We base our estimates and judgments on historical experience and various other assumptions that we consider reasonable, and we evaluate these estimates and judgments on an ongoing basis. We refer to such estimates and judgments, discussed further below, as critical accounting policies and estimates. Some of our estimates may require increased judgment due to the significant volatility, uncertainty and economic disruption of the global COVID-19 pandemic. We continue to monitor the effects of the COVID-19 pandemic, and our estimates and judgments may change materially as new events occur or additional information becomes available to us. Refer to Note 1 to our condensed consolidated financial statements for further information on our other significant accounting policies. Revenue Recognition We generate revenue by delivering ads on our website and mobile application. We recognize revenue only after transferring control of promised goods or services to customers, which occurs when a user clicks on an ad contracted on a CPC basis, views an ad contracted on a CPM basis or views a video ad contracted on a CPV basis. We typically bill customers on a CPC, CPM or CPV basis, and our payment terms vary by customer type and location. The term between billing and payment due dates is not significant. We recognize revenue only after satisfying our contractual performance obligations. We occasionally offer customers free ad inventory, When contracts with our customers contain multiple performance obligations, we allocate the overall transaction price, which is the amount of consideration to which we expect to be entitled in exchange for promised goods or services, to each of the distinct performance obligations based on their relative standalone selling prices. We 32 --------------------------------------------------------------------------------
generally determine standalone selling prices based on the effective price charged per contracted click, impression or view, and we do not disclose the value of unsatisfied performance obligations because the original expected duration of our contracts is generally less than one year.
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